Prospects and problems of Public Private Partnership (PPP) in Bangladesh

Contents
1. Introduction.......................................................................................................1

2. Public Private Partnership in Bangladesh.........................................................1

2.1 Sectors Covered under Public Private Partnership Policy...........................1

2.2 Development Initiatives under Public Private Partnership..........................2

2.3 Public Private Partnership: Where are we?.................................................3

3. Prospects of Public Private Partnership ...........................................................3

4. Challenges of Public Private Partnership.........................................................4

5. Policy recommendations and conclusions........................................................6

References.............................................................................................................7

Words Count: 1278

1. Introduction
Public Private Partnership (PPP) is a form of medium/long term contractual
arrangement between the public and the private sector to deliver specific type of
public services. In PPP the role of public authority includes screening PPP
proposals, project development (risk sharing), tender processing, award of
concession (risk sharing), monitoring project implementation and the role of
private partners includes design and build the project, finance the project from
private equity and debt financing sources, undertake operations and maintenance
work, deliver services to the consumers.

PPP development in Bangladesh can be divided in three phases. First generation

PPP started in 1996 by introducing private sector power generation policy of
Bangladesh. The second generation PPPs started in 2004 after the introduction of
Bangladesh private sector infrastructure guidelines by the government. The third
generation PPPs have been enriched further more as government approved the PPP
budget in 2009.

2. Public Private Partnership in Bangladesh

2.1 Sectors Covered under Public Private Partnership Policy
The government of Bangladesh formulated policy and strategy to strengthen the
activities under PPP. This policy and strategy covers following significant sectors
of the economy -

 Roads and highways

 Mass-transit
 Railways
 Ports
 Airports

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  Electricity
 Water supply and distribution
 Wastewater management
 Waste management
 Information and communications technology
 Land reclamation and dredging
 Oil and gas downstream production
 Tourism
 Irrigation and agricultural services
 Industrial estates
 Mineral resources
 Health
 Education
 Public facilities, social infrastructure and services
 Other urban, municipal and rural projects that the Government views as
priority areas for development.

2.2 Development Initiatives under Public Private Partnership

The government of Bangladesh approved 73 projects under the Public Private
Partnership Programme up to September 2019. Some ongoing projects status 1 is as
below:

S Sector Name of the Project Status

N
1. Health Hemodialysis Centre at National Institute Operational Stage
of Kidney Diseases and Urology (NIKDU)
2. Transport Dhaka –Elevated Expressway. Construction stage
3. Shipping Payra Port Dredging Award Stage-
Contract Signed.

1
www.pppo.gov.bd

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4. Zone Economic Zone 4: Mongla Contract Signed.

2.3 Public Private Partnership: Where are we?

At present, 48 PPP projects are in the pipeline in Bangladesh, worth about $47
billion. A pictorial presentation of all the 48 projects in different sectors are as
below:

15

8 8

6
5
4

Transport Healthcare Economic Civil Tourism Others Energy

& Social Zone Accommodation

3. Prospects of Public Private Partnership

Increase the Investment-GDP ratio: To become a middle income country by
2021, Bangladesh needs to achieve and sustain the GDP growth rate of 8 percent
and share of investment to GDP 35-40 percent, which is 28 percent currently.
Participation of the private sector through PPP is can be a viable solution to
increasing the Investment-GDP ratio.

Implementation of SDG: Achievement of Sustainable Development Goals

(SDGs) involves the participation of private sector actors. PPP provides a window
of opportunity for the government to create a congenial environment for scaling up
public-private partnerships in the development project activities.

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Managing risks, and fostering competitiveness and innovation: The private
sector is very good at managing risk through innovation. At the same time
engaging private sector in the large scale infrastructure projects would foster
competitiveness which will as a direct result incentivize innovation in improving
implementation modality and managing risk as well.

Waning trend of overseas development assistance: Under PPP, the role of

private sector not only include supplying materials, but also engaging in financing,
construction, ownership, maintenance, and management. As the aid flow from the
donors is increasingly declining, the private sector can invest in sectors where
traditionally public sector invests.

4. Challenges of Public Private Partnership

Complex contract: PPP projects are very complicated and very different from the
conventional public sector projects. The contract for PPP project is for a lengthy
period of time and is extremely vital for the business relationship between the
government and the private entity. Clauses in the contract might attract private
investors or potentially drive them away.

Consultancy skill: Like the public sector projects, in PPP projects consultancy
services from local and foreign consultants are required. Often the consultants fail
to understand the local context while planning and designing PPP projects. As
such, consultancy skill is a major obstacle in realizing the successful
implementation of PPP projects. Infrastructure development is the basis for
achieving sustainable growth for Bangladesh. These kinds of major obstacles have
to be eradicated by introducing hassle-free mechanism with proper consulting
guidance from experienced consultants in the related field.

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Fund constraints: From funding point of view infrastructure projects have two
components – (i) Technical Assistance fund (TA), and (ii) Investment fund. TA
fund is used for remunerating technical advisors and consultants as well as for
carrying out feasibility studies and investment fund is used for implementation. For
public infrastructure projects TA fund and investment fund are composite, whereas
for a private infrastructure project these funds are separated. As these two funds
are separated in PPP projects, often size of the fund becomes insufficient and fund
disbursement process fall slow. It slows down the overall implementation.

Implementation of linked activities: One of crucial task with implementing the

PPP projects is timely completion of linked activities as specified in the contract.
These activities include compensation to affected individuals/households, VGF,
annuity payments, etc. and are primarily public sector obligations. Often delays in
carrying out linked components causes delay in implementation.

Delay in DPP Preparation: Delay in getting Development Project Proforma

(DPP) approval often hamper/delay the main PPP initiative.

Delays and cost overruns: Delay in implementation has implication from direct
and indirect point of view. The direct implication is cost overrun and the indirect
implication is economical loss of the target beneficiaries in the form of delay in
provisioning of public goods and services. Thus, delays limit the growth potential
of the economy. Similarly, cost overruns reduce competitiveness of the economy.

Domestic capacity for financing infrastructure PPP projects: Domestic

capacity for financing infrastructure PPP projects by the local commercial banks in
Bangladesh is still limited. Local Banks in Bangladesh have limited capacity to
finance large infrastructure projects. Local commercial banks are largely limited to

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making loans with a maximum term of 5-7 years and generally require equity of
25%- 35%.

5. Policy recommendations and conclusions

In PPP, the concerns and interest of the government and the private sector may
vary due to the focus and the nature of objectives that these two sectors strive to
secure. Therefore, an incentive factor should be in place for the private entity based
on which the two sectors can align their interest and come up in the same page. For
this reason, government should consider the concerns of private sector.

Both development partners and government agencies have common long-term

objective for ensuring country benefit through providing proper infrastructure
facilities. There exist gaps in the roles and modality for the involvement of
development partners in the preparation of PPP projects. A standard framework for
PPP project development in this regard is very important at this moment.

There also exists a knowledge gap in the knowledge of PPP with both the
executing agencies and private investors. As such, the stakeholders are yet to be
made aware of commercial and legal aspects of different types of PPPs. Despite
the efforts in the past in disseminating knowledge on PPP through training and
workshops there are still quite some misconception on PPP and comprehensive
guidance is required in this regard.

The concept of PPP and its application is still unfolding in Bangladesh. In the
recent years, a number of guidelines policies, guidelines and rule came into
existence to bridge the gaps that existed during the previous years. It is expected
that, under PPP modality the partnership of public and private sectors will produce
combined expertise and create a synergy for development.

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References
1. OECD., (2006). Interim Report on the Role of Private Participation in Major
Infrastructure Provision, Submitted to the Working Party on Territorial
Policy in Urban Areas at its 8thsession in Bilbao, Spain, June, 5-6,
GOV/TDPC/URB(2006)5, Public Governance and Territorial Development
Directorate, OECD, Paris.
2. Pablo, S., Bozeman, B., (2004). “The “Gradient Effect” in Federal
Laboratory-Industry Technology Transfer Partnerships. ”Policy Studies
Journal 32(2): pp. 235–252.
3. Park, H., (2006). “PPI System in Korea and its Policy Issues.” Seoul: Korea
Development Institute.